Denial of Discovery Sanctions without Explanation Requires Remand — Contours of the Deliberative Process Privilege

U.S. ex rel. Williams v. Renal Care Group, Inc., 696 F.3d 518 (6th Cir. 2012):

1. The Alexander letter

During discovery, the defendants sought evidence related to whether Medicare/Centers for Medicare and Medicaid Services (CMS) was aware of the RCG/RCGSC relationship. As part of this effort, they requested evidence related to CMS's consideration of Alexander's October 1998 letter to Richter. In September 2008, the United States denied that it was in possession of the letter. Richter also testified that the conversation described in the letter never occurred, and that he was positive that he had never received the letter.

In April 2009, a few weeks before the deadline for completion of all discovery, the United States informed defense counsel that responsive documents may have been inadvertently archived. Leila Carp, an attorney in the Office of General Counsel of the United States Department of Health and Human Services (HHS), had been asked by an HHS employee for assistance in drafting a response to the Alexander letter. Carp did so, and then archived the requested materials. The United States sent a letter explaining this to defense counsel and included a copy of the Alexander letter with a handwritten annotation in the corner reading, "assign to: Gene," as well as a privilege log indicating that a "[d]raft letter to Dawn Alexander discussing Method II" was being withheld for "DP, AC." "DP" and "AC" stand for "deliberative process" and "attorney-client" privilege, respectively.

The defendants moved the district court to compel the United States to turn over the documents, as well as to provide unredacted versions of related documents that had already been provided. The defendants also moved the district court to impose sanctions on the United States for maintaining "for more than two years that Richter (a) did not recall having the conversation with Alexander and (b) did not receive the confirming letter sent by [Alexander]." The United States opposed the motion, contending that it "made good faith efforts to satisfy [its] discovery obligations[,] did not make false discovery responses, offer false deposition testimony, or coerce a partial waiver of the attorney client privilege." The district court denied both the motion to compel and the motion for sanctions without explanation.***


A. Discovery Disputes

The defendants appeal two of the district court's discovery rulings. First, they contend that the district court erred in failing to issue sanctions against the United States over the Alexander letter/Richter response. Second, they contend that the documents protected by the deliberative process privilege should have been produced. We review the district court's rulings on these discovery disputes for an abuse of discretion. Bentkowski v. Scene Magazine, 637 F.3d 689, 696 (6th Cir. 2011). "[A]n abuse of discretion occurs when (1) the district court's decision is based on an erroneous conclusion of law, (2) the district court's findings are clearly erroneous, or (3) the district court's decision is clearly unreasonable, arbitrary or fanciful." Tisdale v. Fed. Express Corp., 415 F.3d 516, 525 (6th Cir. 2005) (alterations and quotations omitted).

1. The Alexander letter

The defendants' motion for sanctions had been premised on a number of issues surrounding the Alexander letter and CMS officials' response to it. These included the filing of interrogatories and document request responses that contained false information, as well as the testimony of Richter, who stated under oath that he was positive that the exchange with Alexander had never taken place. In their motion, the defendants requested the dismissal of the entire action as sanction, but did not indicate whether the sanctions should be awarded pursuant to any particular Federal Rule of Civil Procedure or under the district court's inherent authority. The district court denied the defendants' motion for sanctions without discussion.

Factors to consider in determining whether the district court abused its discretion in failing to award sanctions include "prejudice resulting from the discovery abuse, whether the noncooperating party was warned that violations would result in sanctions, and whether the court considered less drastic sanctions." Id. Two of the three factors outlined in Tisdale are at issue here and weigh in the defendants' favor. First, Richter's false testimony and the United States's late turnover of the Alexander letter prejudiced the defendants' ability to meaningfully depose Richter, which would have assisted in their efforts to prove that they were not in reckless disregard of the truth of their requests for payment. Second, although the defendants requested particularly strident sanctions--the dismissal of the complaint with prejudice--they also requested the "intermediate, interim relief" of "compelling Richter to appear for re-deposition at the government's expense" and "precluding [the United States] from enlarging upon the waiver of Defendants' privileges." Although the United States contends that no prejudice resulted because "the alleged conversation with Richter was not even the primary basis for the lawyers' advice to [the defendants]," such a position is far too reliant on questionable inferences drawn from out-of-context statements by Alexander.

We have previously remanded close questions regarding a motion for sanctions if the district court's denial of sanctions lacks explanation, Moross Ltd. P'ship v. Fleckenstein Capital, Inc., 466 F.3d 508, 519-20 (6th Cir. 2006), and do so here. This issue, of course, may become moot should the defendants not seek to depose Richter again; assuming otherwise, their request to do so should be granted.

2. Documents protected by deliberative process

The defendants requested documents related to CMS's interpretation of the relevant Medicare provisions and its knowledge of industry practice. The United States refused, submitting instead a privilege log showing that the documents were protected by the deliberative process privilege. The district court denied the defendants' motion to compel the production of 323 documents, stating that "the materials are both predecisional and deliberative" and that "[i]n the absence of a showing that the privilege is claimed in error or in bad faith, no in camera review is warranted."

The deliberative process privilege, a carve-out of the Freedom of Information Act (FOIA), 5 U.S.C. § 552, aims to protect documents that are both "predecisional" and "deliberative." Norwood v. FAA, 993 F.2d 570, 576 (6th Cir. 1993). "A document is predecisional when it is received by the decisionmaker on the subject of the decision prior to the time the decision is made, and deliberative when it reflects the give-and-take of the consultative process." Id. (quotation marks and alterations omitted). The privilege extends when "the disclosure of materials would expose an agency's decisionmaking process in such a way as to discourage candid discussion within the agency and thereby undermine the agency's ability to perform its functions." Id. at 577 (quotation marks omitted). Purely factual and investigative matters that are severable without compromising the confidentiality of other documents do not enjoy the privilege. Id.

We have previously held that the district court must be aware of "how each document fits into the deliberative process" and whether it is an "essential element of that process . . . ." Parke, Davis & Co. v. Califano, 623 F.2d 1, 6 (6th Cir. 1980). Given that FOIA encourages complete disclosure, the privilege may only be invoked with specificity and "detailed explanations," and the burden lies with the agency to prove that disclosure would create a chilling effect. Id. In camera review may be undertaken by the district court after consideration of judicial economy, agency bad faith, strong public interest, and the parties' wishes. Rugiero v. U.S. Dep't of Justice, 257 F.3d 534, 543-44 (6th Cir. 2001). "This circuit, however, encourages use of in camera review sparingly, when no other procedure allows review of the agency's response to a FOIA request." Id. at 544. One such alternative procedure is a detailed affidavit, which is entitled to a presumption of good faith. Id. The affidavit is sufficient if it describes "the content of the material withheld and adequately states its grounds for nondisclosure, and if those grounds are reasonable and consistent with the applicable law . . . ." Id.